Bliss v Durran t/as Canberra Sheds and Outdoor Storage; Durran t/as Canberra Sheds and Outdoor Storage v Bliss

NCAT Consumer and Commercial|2017-03-10|Before: Ms J

REASONS FOR DECISION

The dispute arises from the construction of a studio cabin ('the studio'). There is no dispute that there was a contract between the parties. In Matter HB 16/31967, the applicants are the owners of a property at Murrumbateman NSW, located near the NSW/ACT border, and the respondent is the supplier of the studio cabin, who also constructed the studio cabin at the property in 2016, and was involved in the engagement of a private certifier. The studio was in a 'kit' form, and manufactured by Log Cabins (LV) Australia.
The building was certified as not suitable for occupation under Class 1A of the Building Code of Australia ('the BCA'), but classified under "Class 10A" of that Code (which allows for use as a storage shed or garage). The applicants assert that the respondent represented the studio cabin could be used as a dwelling. The applicants seek damages of $28,995.07 for the cost of rectifying alleged defects in the cabin, and modifying it so that it can be certified as complying with Class 1A of the BCA.
In Matter HB 16/30357, the applicant is the supplier and installer of the studio cabin, who seeks $16,895.00 for unpaid monies under the contract, or in the alternative, the reasonable value of unpaid work on a quantum meruit basis, from the respondents.
For ease of identification, in this decision, Mr and Ms Bliss are referred to as 'the owners' and Mr Durran is referred to as 'the builder'.
Both parties are legally represented in the proceedings.
At the hearing, Mr and Mrs Bliss gave evidence and were cross examined. Ms Courtney Durran, the daughter of the builder, gave evidence and was cross examined.

THE CLAIM OF THE OWNERS

The claim of the owners was set out in Points of Claim dated 21 December 2016. In essence, the owners alleged that they contracted with the builder in May 2015 for the builder to supply and install a cabin on their property. The builder was also engaged to prepare and lodge a development application with the local Council in May 2015. The initial agreed price for the supply and installation of the cabin was $36,145.39.
The owners alleged that they made clear to the builder that the cabin needed to be certified as capable of occupation, as they intended eventually to use the cabin as a residence for their elderly parents. The private certifier inspected the cabin in April 2016 and in May 2016 the owners gave the builder a list of defects to be rectified. Some rectification occurred in May 2016. The owners identified 11 defects, and also alleged they had not been able to use the cabin for storage. The owners also sought damages for "storage fees" of $275.00 per month since November 2015.

THE CLAIM OF THE BUILDER

The claim of the builder was set out in Points of Claim dated 21 December 2016. The builder alleged that the contract between the parties was for the builder to "supply and install" the studio, but Mr Durran "emphasised that we were the installers, not the builders". The builder alleged that the owners had accepted the quotation of the builder to supply and install the studio for $36,145.39, and had paid the builder $22,000.00. The work had been completed in April 2016.
The builder asserted that he had worked in "shed construction and installation" for 8 years, but did not have a NSW builder's license. The builder stated that the owners had refused to pay his "final invoice" until various alleged defects had been rectified, and the owners had instructed the private certifier not to issue an occupation certificate until the alleged defects had been rectified. The builder disputed that there were any defects, and if there were defects, they were minor. The builder asserted that he had not been paid $16,895.00 for the reasonable value of the work that had been performed.

DOCUMENTS OF THE OWNERS

The documents of the owners comprised over 400 pages, and it is unnecessary to identify every document. However, the documents of the owners relevantly included:
Affidavit of Mr Stephen Bliss dated 27 January 2017 which annexed numerous documents.
Quotation contained in email of the builder to the owners dated 2 May 2015, and attaching a brochure for a "Log Cabins LV Australia Stirling 7.5m x 5.5m Model SR2122". The "quotation" does not stipulate a price.
An email from the builder to the owners dated 7 May 2015 regarding the structure requiring a "development application through Yass Council".
The Yass Valley Council development application which is undated, but was lodged on 5 June 2015 and emails between the parties in respect of the completion and lodgement of the development application.
The development consent of Yass Valley Council dated 10 July 2015 including "notes accompanying development consent".
An email from the builder to the owners dated 24 July 2015, stating that "the next step is to gain a construction certificate from a certifier" and stating "we have a certifier which is BCA Certifiers". The email states "if you would like to proceed with the cabin, I am happy to place your order". The email attaches a quotation and states that if the quotation is signed "I will also follow up this email up with a contract later today".
A "quotation" for the provision of a "Stirling Model SR2122" structure with installation, in the total amount of $36,145.39. The quotation document is signed by the owners dated 25 July 2015.
Bank transfer documentation and emails between the parties that the owners paid the builder $22, 000.00 on 26 July 2015.
An email from the builder enclosing a document setting out 'terms and conditions' from the builder.
A document of BCA Certifiers entitled "Appointment of PCA-Notice of intention to commence" from "BCA Certifiers-Annette Owen" to Yass Valley Council. The document is signed by Mr Bliss and dated 19 June 2015. In "Section A" of the document that refers to "Development details" the document states "Construction of log cabin for studio purposes". In Section C of the document that refers to "Description of the building work" the document states: "Construct log cabin/studio. Class of building under the Building Code of Australia: Class 1A and 10A".
An email from Mr Bliss to the builder dated 21 September 2015 stating that there were terms of the conditions of the proposed written contract he did not agree with, after having referred the contract to his Solicitor and obtained legal advice. The email then identifies a number of changes that Mr Bliss proposed to the builder.
An email of the builder to Mr Bliss dated 5 October 2015 containing an amended contract, and invoice of the builder dated 24 July 2015. The invoice of the builder dated 24 July 2015 identifies a total amount of $37,495.39 for the supply and installation of a "log cabin-Stirling SR2122"; the engagement of BCA Certifiers; and the cost of the development application to Yass Valley Council.
A contract with the builder signed by Mr Bliss dated 14 October 2015.
Emails between the parties for the period between 18 November 2015 and 13 March 2016.
An inspection record of BCA Certifiers dated 18 March 2016 regarding inspection of piers.
A Construction Certificate issued by BCA Certifiers dated 18 March 2016. The Construction Certificate refers to the proposed development as "New Studio/Shed" and "Classification under the Building Code of Australia: 10A". The Construction Certificate makes no reference to the building being classified under Class 1A of the Building Code of Australia. The Construction Certificate contains a copy of the plans and specifications for the cabin.
An email of Mr Bliss to the builder dated 28 March 2016. The email states that Mr Bliss has inspected the frame for the cabin, and raises "concerns" that the frame is (i) not square; (ii) the damp course between the metal frame and treated pine is inadequate; and (iii) the FoilBoard insulation is not installed pursuant to the manufacturer's guidelines.
Emails between the parties dated 30 March 2016 regarding resolution of the issues raised by Mr Bliss in his email of 28 March 2016.
An "inspection record" from BCA Certifiers dated 26 April 2016 that the work was complete.
Correspondence between Mr Bliss and the builder from 8 May 2016 to 1 June 2016 regarding alleged defects which the owners asserted the builder should rectify. Relevantly, the owners prepared a series of spreadsheets setting out the alleged defects; whether or not they had been rectified to the satisfaction of the owners; and the date of rectification. The final spreadsheet is dated 1 June 2016.
An email from the builder dated 8 June 2016 attaching a revised invoice. The invoice remains dated 24 July 2015, but states the total amount owing is $18,245.39. The amount is increased from the previous invoice on the basis the following items: (i) Long Service Levy that was payable to NSW Building Levy in the sum of $250.00 and (ii) "As agreed after original quote supply and install underfloor insulation" in the sum of $950.00.
A letter of the builder to the owners dated 8 June 2016. The letter states that BCA Certifiers had certified the structure as compliant with Class 10A of the Building Code of Australia and "your building was built and certified…satisfying all council regulations." The builder stated that it had "fulfilled all obligations in relation to the building". The builder stated that he had "examined the spreadsheet" and was "more than happy to come out and view your concerns but this will be at added cost". The builder demanded payment of "final invoice", and upon payment "all keys, plans and compliance certificate will be provided".
An email exchange between Mr Bliss and Ms Owen, private certifier of BCA Certifiers on 13 June 2016 regarding whether or not the studio was compliant with the Building Code of Australia.
An Inspection Record of BCA Certifiers dated 27 June 2016. The inspection record states that (i) the stairs require replacement as the goings in the current set are 10mm under the required height; (ii) due to the height of the structure off the ground, a landing should be provided; and "further clarification should be sought from DuralGal, in relation to the deflection of stump in the rear left had corner of the cabin, as to whether this is within product tolerances. Or a structural engineer can provide comment".
An affidavit of Ms Delys Bliss dated 27 January 2016.
An expert report of Mr Mal Wilson, structural engineer, of Advanced Structural Solutions, dated "September 2016". The report does not have a precise date. The report was engaged by the builder's Solicitor. The report is entitled "Assessment of Class 10A/1A Building".
An expert report of Mr Mal Wilson, structural engineer, dated February 2017. Again, the report does not have a precise date. The report is entitled "scope of work". The second report of Mr Wilson was engaged by the owners Solicitor.
An expert report of Mr Peter Leary, building consultant, of Peak Consulting, dated 1 March 2017, with attached Scott Schedule.

DOCUMENTS OF THE BUILDER

The documents of the builder comprised 159 pages. The key documents are as follows:
Affidavit of Colin Durran dated 9 January 2017, with numerous documents annexed to the affidavit. Many of the annexures are documents which are also in the documents of the owners.
Affidavit of Wendy Durran (wife of the builder) dated 23 February 2017.
Affidavit of Courtney Durran dated 23 February 2017.
Affidavit of Annette Owen (private certifier of BCA Australia) dated 2 March 2017.

Expert Reports of Mr Wilson

The owners did not arrange for Mr Wilson to attend the hearing for the purpose of cross examination, nor did the builder object to his reports being tendered as evidence by the owners on the basis he was not present for cross examination. Mr Wilson's report attaches a number of documents, including extracts of the Building Code of Australia, and the development consent issued by Yass Valley Council.
In his report of September 2016, Mr Wilson states:
The brochure of the Stirling cabin supplied to the owner by the builder "clearly shows the roof as tiled", but when the studio was constructed a corrugated sheet metal roof was installed. No roof battens were supplied by the supplier of the kit, nor was there any engineering calculations or certification in respect of the structural capacity of the studio, and in particular its load bearing capacity (including the roof and walls) and wind resistance.
The studio was constructed with no structural design certification; no "documented methodology such as assembly drawings"; and by a builder who did not have a building license in NSW.
The roof battens; roof purlins; and wall braces are insufficient to comply with Australian Standard AS 1684.2.
There are insufficient roof flashings and fixings in the ridge capping of the roof.
The footings and support posts are structurally adequate, despite being out of plumb and "well outside normal tolerances".
The nib wall on the front door side is 10 mm out of plumb over a 2 metre length, and has a bow in it. This can be rectified with a small steel beam and a series of G clamps.
The cement over the posts and beams at ground level is unsightly, and requires cleaning up.
The insulation under the building has been inadequately fixed, and the foil board should be fixed directly to the floor using floor board fasteners.
A window requires adjustment.
The stairs risers and treads do not comply with the standards in the Building Code of Australia.
Roof drainage is inadequate, because the downpipe discharges water directly onto a footing, which will cause uneven ground movement over time and affect the structure of the building. Mr Wilson "notes that a condition of the development consent (appendix C4) mandates drainage provisions that have not been complied with".
The height of the roof does comply with the; "minimum roof requirement that I consider is rectified by the BCA and is a specific condition of Yass Council's (sic) development consent". Mr Wilson states that in his capacity as an engineer: "I am often require to determine a building classification based on the information at hand and I have offered my opinion here based on my understanding of the BCA". Mr Wilson states that, having read the development approval of the Council, the Council "classified the building as Class 1A for the studio component and 10A for the shed component" and that a condition of the development consent was "the proposed studio area must have a room height of 2.4m over 2/3 of the floor area of the room or space".
Mr Wilson states as follows: "Whilst the plans provided to Council readily comply with the Council's minimum height stipulation the building itself does not comply (54% greater than 2.4m) as the roof pitch is markedly different from the submitted plans. One window has also been omitted from the drawings submitted to Council…the building appears to have been "re-classified" by the BCA Certifiers on their construction certificate as a Class 10A building which the BCA suggests is a private garage, shed or the like."
Mr Wilson states that, in respect of whether a building falls within Class 1A or Class 10A of the Building Code of Australia a key issue is whether or not the building contains a "habitable room" within the meaning of the BCA. The definition of "habitable room" includes a living room, and study, but excludes spaces "occupied neither frequently or for extended periods". Mr Wilson notes that there is a dispute between the owners and the builder as to whether there was an intention for the studio to be used as a storage shed, or for persons to reside in. Mr Wilson states: "It would appear that BCA Certifiers have come to an opinion that the studio will be used neither frequently nor for extended periods. Given that in my experience 'studios' are occupied both frequently and for extended periods, I would not ordinarily share that view".
Mr Wilson notes that Mr Bliss told Mr Wilson that the studio was constructed so that one of his elderly parents could reside in the studio "in the long term" but that "in the short term" the building was to be used as storage. Mr Bliss stated that the builder had been told of the purpose for the building. Mr Bliss told Mr Wilson that if he wanted a storage shed, he would have budgeted $5,000.00 rather than $38,000.00. Mr Wilson opines that "this is a fairly obvious observation that should have been readily apparent to all involved".
In his report of February 2017, Mr Wilson states that he attended the property for a further inspection on 24 January 2016, and that since the previous inspection "numerous additional problems had become evident". Mr Wilson sets out the defects in his supplementary report, and provides a "scope of works" of 19 items requiring rectification. Mr Wilson states that the "most extreme" further defect is that "the side walls are now bowing outward adjacent to the windows" which is causing "buckling" of the walls.

Report of Mr Leary

As with Mr Wilson, Mr Leary was not present for cross examination, but the builder did not oppose the report of Mr Leary being tendered as evidence on this basis. Mr Leary's report attaches his curriculum vitae and adopts the Expert Witness Code of Conduct under the Uniform Civil Procedure Rules 2005 (which do not apply in the Tribunal, but the NCAT Expert Witness Code of Conduct has the same content).
Mr Leary's report is brief. Mr Leary states that he performed a "non-invasive visual inspection" of the building, and took measurements. Mr Leary states that "the structure is constructed substantially in accordance with the broad plans and drawing which were provided" but: "the structure is not, in the opinion of the consultant, constructed as a log cabin, as this would significantly require different aspect ratio profiling of the individual boards whereas the boards used to construct this structure are essentially thin boards stacked on the edge rather than moderately equal profile boards stacked to form a thicker wall structure".
Mr Leary, using the defects identified in Mr Wilson's "scope of works", prepared a Scott Schedule which sets out the type of rectification work to be performed, and the cost. The total amount for the cost of rectification, including GST and a 15% builder's margin, is $28,995.07.

JURISDICTION OF THE TRIBUNAL

From the material filed with the Tribunal and the procedural history of the matter, it appears that, prior to the directions hearing presided over by Principal Member Rosser, the builder took the position that the Tribunal did not have jurisdiction in this matter under the HBA as the work did not involve "residential building work" within the meaning of the HBA, and that (despite the fact that the builder had taken proceedings against the homeowner in the Tribunal under the HBA), both sets of proceedings should be dismissed.
The builder resiled from that position, as noted by Principal Member Rosser, and did not make a submission at the hearing that the proceedings should be dismissed for want of jurisdiction. However, the Tribunal must still be satisfied it has jurisdiction in the matter.
Section 48K of the HBA states that the Tribunal has jurisdiction to hear and determine any "building claim" that relates to "building goods and services" under a contract between the parties (Sections 48K(3) and (4) of the HBA); or in respect of breach of a statutory warranty implied into the contract (Section 48K(7) of the HBA), provided the proceedings have been brought within the relevant limitation period.
"Building claim" is defined in Section 48A of the HBA to include a claim for the payment of money or the performance of work: "that arises from a supply of building goods or services whether under a contract or not, or that arises under a collateral contract…but does not include a claim that the regulations declare not to be a building claim".
"Building goods or services" is defined in Section 48A as: "goods or services supplied for or in connection with the carrying out of residential building work, or specialist work, being goods or services (a) supplied by the person who contract to do, or otherwise does, that work, or (b) supplied in any circumstances prescribed by the regulations to the person who contracts to do that work".
"Residential building work" is defined in Schedule 1 Clause 2 of the HBA. It includes "any work involved in, or involved in co-ordinating or supervising any work involved in (a) construction of a dwelling, or (b) the making of alterations or additions to a dwelling, or (c) the repairing, renovation, decoration or protective treatment of a dwelling". Under Clause 2(2), residential building work includes roof plumbing work, and specialist work. Under Clause 3(1), "dwelling" is defined as including a building or portion of a building "that is designed, constructed, or adapted for use as a residence…" Under Clause 3(2)(i) the following "structures or improvements" are included in the definition of "dwelling" if "constructed for use in conjunction with a dwelling": (i) "detached workshops, sheds and other outbuildings". Further, under Clause 3(4), a structure or improvement is included in the definition of "dwelling" if "it is constructed for use in conjunction with a dwelling is to be regarded as a dwelling whether or not there exists any dwelling of which it could be taken to form a part of".
Schedule 1 of the HBA, and the Home Building Regulation 2010 ('the HB Regulations') include types of work that are not "residential building work" and types of buildings that are not dwellings. However, they are not applicable to the circumstances of this matter, where the cost of labour and materials the subject of the dispute exceeded $5,000.00 (Regulation 5 of the HB Regulations).
Whether or not the studio building was designed or constructed to be used as a residence in the future (as the owner asserts), or only as a "storage shed" (as the builder asserts), the Tribunal has jurisdiction in the matter under the HBA. Even if the builder's assertion is accepted, and the studio is a "shed" or "outbuilding", the evidence of the owners and the plans for the studio that are in evidence show it is to be used in conjunction with a dwelling (the owners living in a residence on the same property on which the studio building was erected).
I am satisfied the Tribunal has jurisdiction in this matter under the HBA, both in respect of the owner's claim against the builder, and the builder's claim against the owner for unpaid monies.
Even if the Tribunal did not have jurisdiction to determine the owners' claim against the builder under the HBA, the Tribunal would have jurisdiction under Part 6A of the Fair Trading Act 1987 ('the FTA'), because the owners fall within the definition of "consumer" and the claim falls within the definition of "consumer claim", and the proceedings are brought within 3 years of the date of the cause of action. Under Section 28 of the FTA, the Australian Consumer Law 2010 ('the ACL') is a law of NSW. Under Section 60 of the ACL, there is a guarantee implied into consumer contracts that services will be provided with due care and skill. The legal principles that would be applied to the owners claim against the builder if it fell within the FTA rather than the HBA would not be significantly different to the principles that apply under Section 18B (1)(a) of the HBA (Barwick v Shetab [2017] NSWCATAP 127 at [77]).

Limitation Periods Under the HBA

Both parties have commenced proceedings within the limitation period set out in Section 48K of the HBA (and in respect of the owner's claim for breach of statutory warranties under Section 18B of the HBA, within the limitation period set out in Section 18E of the HBA). The owner's claim was commenced within 2 years of completion of the work under the contract and accordingly (in respect of any statutory warranty claim by the owners) it is unnecessary to distinguish between "major defects" (6 year limitation period) and "minor defects" (2 year limitation period).

The Contract Between the Parties

I am satisfied that there was a contract between the parties for the builder to supply and install the studio on the property of the owners for the sum of $37,495.39. The agreement between the parties also included the builder arranging for a development application. The owner Mr Bliss signed a written agreement dated 14 October 2015. With that written agreement, the builder provided an "invoice" document that the agreed cost for supplying and installing the Stirling SR2122 cabin and the builder lodging a development application and engaging a private certifier was $37,495.39.
A key issue is whether it was a term of the contract that the cabin be able to be certified as a Class 1A building under the Building Code of Australia. The written contact between the parties makes no reference to this issue. Contracts are to be interpreted objectively, with primacy given to the written agreement of the parties. However, an oral term can be implied into a contract if (i) it is reasonable and equitable to do so; (ii) it is necessary to give business efficacy to the contact; (iii) it is so obvious it goes without saying; (iv) it is capable of clear expression; and (v) it is not contradicted by an express terms of the contract (Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) HCA 51; (1979) 144 CLR 596 at 605-606, adopting the principle set out in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 282-283).
However, the principle in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 is modified if the parties have not intended to spell out all of the terms of the contract in writing. In such circumstances, a more flexible approach is to be taken to the issue of whether or not a term is implied into a contract and "…in a case where it is apparent that the parties have not attempted to spell out the full terms of their contract, a court should imply a term by reference to the imputed intention of the parties if, but only if, it can be seen that the implication of the particular term is necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case" (Hawkins v Clayton (1988) HCA 15; (1988) 164 CLR 539 at 573 per Deane J; Byrne v Australian Airlines Pty Ltd (1995) HCA 24 at [47] per McHugh and Gummow JJ ; (1995) 185 CLR 410;).
The evidence of the owners is that they met Mr Durran and his daughter Ms Courtney Durran at their home on 25 April 2016, the owners made clear that they wanted a structure that in the short term could be used for storage and as a craft and sewing area, but in the long term could be used for the owners elderly parents to reside in. According to the owners, Mr Durran agreed the studio could be used for such a purpose, and commented that he was "buying a cabin like this to build in my backyard as permanent accommodation for my daughter and granddaughter". Mr Bliss deposed in his affidavit that that he made clear to Mr Durran that he understood that the studio would eventually require plumbing and electricity installed to be able to be used as a residence, and that Mr Durran stated that the studio was capable of having plumbing and electricity installed without major modification.
In cross examination, both Mr and Ms Bliss remained adamant that they had made clear to Mr Durran that the intended use of the studio was for occupation on a short or long term basis, either in respect of their elderly parents, or friends staying at the property.
The affidavit of Mr Durran does not contain a detailed version of what was discussed on 25 April 2015 and the affidavit of Ms Courtney Durran states that Mr Bliss only referred to the use of the studio as a "storage shed". However, Mr Durran was not present at the Tribunal to be cross examined, and the evidentiary weight of his evidence is significantly reduced.
The brochure that of the studio that the builder gave the owners shows the internal structure of the studio having a desk, chairs and furniture. Such material contained the brochure indicates the studio was represented as being capable of, at least, being used by persons as an office space or study, which is consistent with the definition under Class 1A of the BCA (as set out in the report of Mr Wilson dated September 2016) rather than Class 10A. Further, the price of the studio was significant, which is consistent with the evidence of Mr Bliss that if the owners had only wanted a storage shed or area in which craft could take place, they would not have chosen such a studio.
The development application lodged on 5 June 2016 contains some ambiguities. There is no dispute the document was prepared by Ms Courtney Durran on behalf of the builder, and signed by the owners. The owners state that the application did not clearly reflect their understanding about the permitted use of the structure. The application refers to the owners and "owner/builders", but the owners are adamant they told Mr Durran they had no intention of becoming owner/builders, and it is clear the builder never asserted that he could not construct the studio until an owner/builder licence had been applied for and issued by NSW Fair Trading. Rather, the builder constructed the studio in any event.
I am satisfied that the owners were not, at any relevant time, licensed owner/builders, and that they informed the builder prior to the entering into the contract they had no intention of becoming owner/builders. However, the key issue is whether it was a term of the contract that the studio be classified as structure complying with Class 1A of the BCA as constructed, it being clear that further work (and a further development consent) would be required to add plumbing, electricity, a toilet/bathroom; and a kitchen to the structure.
The development application refers to the proposed use of the structure being "erection of a log cabin as to be utilised as a studio" and the structure to be used as a "storage/studio." The development consent issued by Yass Valley Council refers to "Classification: Class 1A and 10A". The application to BCA Certifiers signed by the owners dated 10 July 2015 refers to the "classes of buildings under the Building Code of Australia" as "Class 1A and 10A". I am satisfied that, assessed objectively, the imputed intention of both parties was that it be a term of the contract that the studio be a structure compliant with Class 1A of the Building Code of Australia, and that it is necessary to imply such a term for the reasonable or effective operation of the contract.
Even if the structure being built in a manner that was compliant with Class 1A of the BCA was not an implied term of the contract, I am satisfied that Mr Durran represented to Mr and Mrs Bliss on 25 April 2015, expressly or impliedly, that the studio would be constructed in a manner that would allow it to be capable of occupation (rather than only used for storage); the owners relied on this representation; and that the owners have suffered detriment because the structure has not been certified as compliant with Class 1A of the BCA and requires modification (as set out in the expert reports of Mr Walton) to make it compliant with Class 1A of the BCA. In such circumstances, the builder is estopped from denying that the studio was to be constructed in a manner compliant with Class 1A of the BCA (Waltons Stores (Interstate) Pty Ltd v Maher (1988) HCA 7; (1988) 164 CLR 387).

Circumstances in Which the Contract Ended

The owners cannot sue for damages (rather than an order to do work) if the contract remains on foot (Brewarrina Shire Council v Beckhaus Civil Pty Ltd [2005] NSWCA 248; Little v J & K Homes Pty Ltd [2017] NSWCATAP 184). In other words, unless the contract has been completed, or it has been lawfully terminated by either party (including electing to terminate after repudiatory conduct of the other party), the owners cannot sue for damages.
Although the owners sent the builder a list of defects, I am satisfied on the evidence that the builder installed and constructed a 'Stirling SR2122' studio building. I am not satisfied that the owners have established that there were any significant incomplete items, rather than issues with the structure that require rectification (which will be discussed further below). I am satisfied that the builder completed the work under the contract and such work was complete by 8 May 2016 (although whether the builder is able to recover unpaid monies under the contract is a separate issue).
If the above analysis is incorrect, and the contract was not completed by the builder, I am satisfied the conduct of the builder in writing to the owners on 8 June 2016 stating that he would not rectify any defects unless paid was conduct that was clearly inconsistent with the builder's obligations under the contract, and was repudiatory conduct (Shevill v Builder's Licensing Board (1982) HCA 47; (1982) CLR 620)

Defective Work

There is no dispute that the builder did not have a building license, nor that there was no home warranty insurance obtained by the builder, despite the value of the contract exceeding $20,000.00. I am satisfied that the builder was engaging in residential building work, and was not appropriately licensed.
Under Section 18B(1)(a) of the HBA, there is a statutory warranty implied into contracts to perform residential building work that the work will be performed with due care and skill, and in accordance with the plans and specifications set out in the contract. Under Section 18B(1)(f) of the HBA, there is a statutory warranty that the work will be fit for the purpose the owner has expressly made known to the builder.
I am satisfied that the owners have established that the builder breached the implied statutory warranty under Section 18B (1)(a) and (f) of the HBA. Mr Wilson has identified a number of defects in the building (in particular, the height of the roof is too low for certification as a Class 1A building under the Building Code of Australia, and the walls of the studio are beginning to buckle) and Mr Leary has provided a scope of works and cost of rectification in respect of the defects identified by Mr Wilson. There is no expert evidence to dispute or contradict the evidence contained in the reports of Mr Wilson and Mr Leary, and I accept the evidence contained in the reports of those experts. Mr Wilson also states that the studio does not comply with the plans lodged with Yass Valley Council in the development application. Such defects are in breach of Section 18B (1) (a) of the HBA.
I am satisfied the owners expressly made known to the builder that the studio must be constructed in a manner that allowed it (after future work was performed involving plumbing and installation of electrical wiring) to be used in the future as a dwelling. By reason of the fact that the studio was constructed in a manner not compliant with Class 1A of the Building Code of Australia, the builder has breached Section 18B (1) (f) of the HBA.
Although Part A (6) of the Development Consent dated 10 July 2015 from Yass Valley Council states: "The approved studio/storage shed shall not at any time be occupied, inhabited or used for residential living, commercial or industrial activities without the separate development consent of the Council", that condition does not alleviate the breach by the builder in respect of the studio not being constructed in a manner compliant with Class 1A of the BCA. The owners accept that a further development approval and further additions to the structure will be required prior to it being occupied by their elderly parents. However, by reason of the studio not being constructed in a manner compliant with Class 1A of the BCA, such further additions would have no utility, because the structure itself is not compliant with Class 1A.

Section 48MA of the HBA

Under Section 48MA of the HBA, the preferred outcome is that a builder performs rectification work, rather than there be an award for damages for the cost of rectification. I am satisfied that rectification work by the builder is not the preferred outcome. The builder is unlicensed, and cannot perform rectification work without breaching the provisions of the HBA that stipulate that work can only be performed by a suitably licensed builder. No home warranty insurance was taken out by the builder, and as an unlicensed person the builder would not be able to obtain home warranty insurance for the work that was done, or any rectification work, in any event.
I am satisfied that the appropriate remedy for the breach of statutory warranties is an award of damages to the owners.

Measure of Damages

Having established breach of statutory warranty under Section 18B of the HBA, the owners are entitled to damages that put the owners back in the position they would have been had the contract been performed (Robinson v Harman (1848) 1 Ex 850; 154 ER 363). In respect of defective work, the measure of damages is the sum of money required to rectify the work so as to produce conformity with the contract, provided that rectification is the reasonable course to adopt. Rectification will only be unreasonable in exceptional circumstances, in the sense that the rectification works are so extreme or so far outweigh the severity of the defects that full rectification would clearly be unreasonable (Bellgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613; Tabcorp Holdings Pty Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2009) 236 CLR 272).
I am satisfied that the scope of works for rectification and amounts set out in the report of Mr Leary are not unreasonable, considering that the studio has not been built in a manner that conforms with Class 1A of the BCA, and has defects as set out in the reports of Mr Wilson and Mr Leary. I am satisfied that the cost of rectifying defects so that the work conforms with the contract is $28,995.07.
However, in the circumstances of this matter, $28,995.07 is not the ultimate measure of damages. The contract between the parties was for the studio to be installed and erected (and development approval obtained from the Yass Valley Council; and a private certifier engaged) for the sum of $37,495.39. I am satisfied the builder completed the work under the contract, other than rectification of defects. The owners paid the builder $22,000.00 and refused to pay further monies to the builder. For reasons discussed below, I am not satisfied the builder can recover any further amount under the contract, or on a quantum meruit basis. If the builder succeeded in his claim, there would have been separate awards that the builder pay the owner the amount for the cost of rectification, and the owners pay the builder the amount under the contract or on a quantum meruit basis.
However, despite the fact that the builder fails in his claim against the owners, the owners do not get the benefit of the fact that they have not paid monies that had been agreed upon as the cost of a installing and completing the studio in circumstances where the work had been completed by the builder. The damages of the owners consequent upon the builder's breach is the amount they have to expend over the contract sum so that the defects are rectified to bring the studio into the condition it should have been had there not been a breach of Section 18B of the HBA, and a deduction for the amount not paid under the contract must be made (Advanced Brick Systems Pty Ltd v Chen [2013] NSWCTTT 357 at [52]). Accordingly, from the cost of rectification, there is a deduction of the amount not paid under the contract of $15,495.39. The amount of damages to be paid by the builder to the owners is $13,499.68.
Although the builder sent a final invoice on 8 June 2016 that included a long service levy and underfloor insulation (a further total amount of $950.00) the affidavit of Mr Durran dated 9 January 2017 does not contain any detailed evidence in respect of the circumstances in which it is asserted the contract was varied and Mr Durran was not present to give evidence or be cross examined. I am not satisfied the agreed contract price was increased a further $950.00 during completion of the work by the builder.
The owners claim for damages due to not being able to use the studio for storage is dismissed. There is no expert evidence that the studio cannot be used for storage, and no evidence that the owners have incurred storage costs.

DETERMINATION OF THE BUILDER'S CLAIM

The affidavit of Mr Durran dated 9 June 2017 states that made clear to Mr Bliss in April 2015 that he was "the installer not the builder" and that he did not believe that the person installing what he refers to as a "kit shed" required a building license. Mr Durran states at paragraph 43 of his affidavit that "a handyman with some skill in building" could install the structure.
The affidavit of Mr Durran clearly displays a complete misunderstanding of the obligations of any person performing residential building work under the HBA. The structure was more than a "kit shed", it was a structure with a number of windows and marketed in the brochure of the manufacturer as a "log cabin". The agreed price for the supply and installation of the studio was for an amount of approximately $38,000.00, which is a significant amount of money. For reasons discussed above, I accept the evidence of Mr and Ms Bliss that, when they agreed to purchase the studio, they made clear to Mr Durran that the studio needed to be sufficiently capable of being used in the future for accommodation purposes, and that they did not seek to obtain an owner/builder licence. I am satisfied the builder installed the studio as a builder, not as a supervisor for an owner/builder.
The studio is "residential building work" within the meaning of the HBA, and the work was performed by an unlicensed builder, and no home warranty insurance was taken out. The written contract and "invoice" documents do not comply with Section 7(2) of the HBA (nor Schedule 2 Part 1 of the HBA), as (i) no plans or specifications were provided with the contract (although they were subsequently submitted with the development application to Yass Valley Council) ; (ii) no contractor's license number was provided (the builder not being a licensed builder); and (iii) no 'cooling off' statement was included under Section 7BA of the HBA.
By reason of Section 10 of the HBA, the builder cannot sue under the contract for unpaid monies. However, the builder can bring proceedings to be compensated for the reasonable value of the work performed under the principles of quantum meruit, and the builder's Points of Claim make clear that proceedings are brought on the basis of quantum meruit. As there was no home warranty insurance taken out by the builder, the provisions of Section 94(1A) of the HBA apply, and the Tribunal can only award compensation on a quantum meruit basis if is "just and equitable" to do so (Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprises Pty Ltd [2004] NSWSC 273).
The principles relevant to quantum meruit have been considered by the Tribunal in numerous decisions. The principles were concisely summarised by Senior Member Goldstein in Zammitt t/as Zammit's Quality Constructions v Markunsky [2015] NSWCATCD 21 at [47]. The Tribunal must determine, on the evidence before it, what fair and reasonable compensation for the value of the work or services performed. Evidence of what the parties agreed to as the value of the work is an evidentiary component of determining the value of the work performed, and it may or may not be sufficient evidence in all the circumstances of the matter (e.g. comparing the circumstances of Lauer v Comer (No 2) [2016] NSWCATAP 158 with Kelly t/as TJ & Kelly v Smith [2016] NSWCATCD 92).
For the builder to succeed on a quantum meruit in this matter, I must be satisfied that (i) it is just and equitable for the builder to be compensated on a quantum meruit basis; and (ii) there is sufficient evidence to determine the fair and reasonable value of the work or services performed. In respect of the failure to obtain home warranty insurance, there is a spectrum that needs to be considered, and ignorance or mere inadvertence will be considered more favourably than deliberate contravention (Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprises Pty Ltd [2004] NSWSC 273 at [58]).
Although I am not satisfied the builder deliberately contravened his obligation to obtain home warranty insurance, I am not satisfied the builder has established that it is fair and equitable that he obtain compensation for the work performed on a quantum meruit basis. I am satisfied that the builder represented to the homeowner that there was no legal impediment to the builder supplying and installing the studio. The builder submitted the development application to the Council on behalf of the homeowner, and arranged for the private certifier to be engaged. The builder knew the owner was not licensed as an owner/builder, and I accept the evidence of the owners that they had made clear to the builder they had no intention of being owner/builders. There is no evidence the builder made any enquiries with NSW Fair Trading, or obtained any advice, regarding whether or not he required a building license or home warranty insurance before performing the work under the contract. In the circumstances of this matter, the conduct of the builder is significantly greater than mere inadvertence.
Even if it was fair and equitable for the builder to be compensated on a quantum meruit basis, the builder has not provided sufficient evidence to establish the fair and reasonable value of the work performed. There is no evidence from an independent expert valuing the work. There is no evidence from the builder that clearly shows the amount charged for labour and materials; or the profit margin; or the amount of time spent on site. I am not satisfied that the evidence contained in the quotation and contract is sufficient, in all the circumstances of the matter, to prove the fair and reasonable value of the work or services performed by the builder. Accordingly, the builder's claim is dismissed.

CONCLUSION

In Matter HB 16/31967, the builder is to pay the owners damages of $13,499.68. Considering the manner in which I have dealt with the respective claims of the parties, it is also appropriate under Section 48O (1)(b) of the HBA to order that the owners are not liable to pay the builder any further monies under the contract. In Matter HB 16/30357, the builder's claim against the owner is dismissed.

COSTS

Both parties are legally represented. If the owners are making an application for costs it is to be made in the following manner: 1. Any application for costs is to be made by way of written submissions, to be filed with the Tribunal and served on the other party on or before 21 days from the date of this decision. The application is to deal with the issue of "special circumstances" under Section 60 of the NCAT, particularly where it does not appear that the amount in dispute in the proceedings exceeded $30,000.00 (Regulation 38 of the Civil and Administrative Tribunal Rules 2014). 2. Any submissions in reply are to be filed with the Tribunal and served on the other party within 14 days of the date of service of submissions. 3. The parties submissions are to indicate whether either party seeks the matter be listed for oral argument on the issue of costs in addition to written submissions. The Tribunal may determine, under Section 50 of the NCAT Act, to determine the issue of costs solely on the basis of the written submissions of the parties. G.J. Sarginson Senior Member Civil and Administrative Tribunal of New South Wales 27 June 2017 I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 25 August 2017

At a glance

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Judgment (18 paragraphs)

Cases Cited (17)

Cited By (1)